I just came across this rather wacky article about how buying holiday gifts is bad for the economy: http://articles.moneycentral.msn.com/Investing/top-stocks/blog.aspx?post=1498404&_blg=1,1498404. Is this true? I will recap the main arguments, and tell you whether they are true or false.
#1. Gift-giving is inefficient.
True. The economic paper The Deadweight Loss of Christmas theorizes that when you buy someone a gift, it is likely that if they had had the money instead, they would have bought something different. This means that your gift is less efficient than just giving them the money. However, the paper also points out that gifts can actually be MORE efficient in some instances-- for example, because the item is a gift, it may have sentimental value beyond its purchase price. However, the main problem with this argument is that it confuses microeconomic efficiency with macroeconomic benefits. If consumers spend more as a result of gift-giving than they would if they only bought items for themselves, then this is good for the macro economy, and good for creating jobs.
#2. Consumption is less of the economy than we think, because the middle steps of production aren't counted.
Bizarre. I don't think the author understands the concept of GDP and how it relates to consumption at all. GDP is the total value of everything produced in the United States. You can't count the middle steps, because that would be double-counting. We count GDP by measuring the four things that we can do with what we produce: consume it, invest it, import it, or use it in the government. Those four things drive demand for our goods and services. Yes, there are middle steps-- but no one would pay people to cut lumber for couches if someone wasn't eventually going to buy the couch. So when economists say consumption is 70% of the economy, consumption really is 70% of the economy-- or at least it drives 70% of it.
#3. Consumer confidence is misleading because the survey only asks 6 things.
False. Complain about how many questions there are all you want, but the consumer confidence indices that come out of those questions have shown themselves to be accurate reflections of how the economy is behaving. Next time you want to complain about an indicator, show me evidence that it contains no information.
#4. The seasonal upward trend in the stock market isn't due to gift shopping.
Who cares? There is no reason to expect it would be. Market participants know that consumption goes up in December, so that would already be built into prices. Stock prices might rise if retail numbers were much stronger than market participants expected (or might fall if they were weaker.) But none of that is a reason that gift shopping is bad, if gift shopping raises overall consumption.
There is a real reason gift-giving can be bad: we can't afford it. If purchasing gifts drives consumers into debts they would not otherwise have, it is probably not good for individuals. It may be bad for the United States as a whole as well, since low saving is a driver of the trade deficit. However, if you can afford it, and you feel so moved, don't be a Scrooge-- go buy that gift and encourage job growth!
The preliminary estimate of GDP growth was revised down this week from 3.5% at an annual rate to 2.8%. While we'd clearly rather have the higher number, 2.8% is still pretty good compared with recent quarters.
What's behind the revision? New, better data indicate that personal consumption rose less than initially estimated. Also, imports, which don't count towards U.S. GDP, were a larger share of the increase in consumption. On the plus side though, exports rose more than the preliminary GDP report estimated.
While the increased imports mean a lower estimate of U.S. GDP, they can still be seen as good news for our trading partners.
I have worked in economic policy and research in Washington, D.C. and Ghana. My husband and I recently moved to Guyana, where I am working for the Ministry of Finance. I like riding motorcycle, outdoor sports, foreign currencies, capybaras, and having opinions.